Credit Cards and Surviving the Recession

The recession is big news worldwide and affecting every household on a global scale. In Europe and the USA, the resulting credit crunch and calling in of outstanding debt has crippled economies and driven many businesses to bankruptcy. Applying for credit is not an easy feat in these areas and a low credit score is far more detrimental to a person's chances of credit approval than it was two years ago.

South Africa has managed to remain with its head somewhat above water thanks to a relatively stable banking structure and lower private debt, although the country is definitely feeling the heat of the recession. Redundancies have been initiated and prices have soared, especially food prices which have risen to a 17.3% increase recorded in December 2008. Overall, these conditions mean that South Africa has one of the stronger economies in the world, but is not unaffected by the recession.

Owning a credit card during a recession is frequently labelled a major personal liability. Yet in South Africa, owning a credit card is not as much of a risk as believed. The country's relatively stable economy means that credit cards are very manageable during this time, if parameters are set and the card owner remains sensible about managing their card spending and payments. Credit cards have many positive features yet a recession makes those hard to appreciate. These tips are a basic guide to managing your credit card safely during the recession.

1. Look after your credit rating
The recession has made those financial institutions issuing credit a lot less willing to give credit to those who have tarnished records. Whereas previously, when credit providers were willing to give home loans to anyone with a moderate to high rating, records need to be spotless to qualify at present.

Keeping your credit rating in the clear should be your main focus during this period. Paying bills late (or never!) and spending over your credit limit will damage your credit rating.

2. Compare credit cards before choosing an option
Every credit card is different - each financial institution will offer different versions of regular cards, business cards, secure cards and savings 'credit' cards and you will need to make a credit card comparison to discover what is right for you. These card schemes will have different APRs (annual percentage rate/interest rates), rewards schemes and fee structures. Make sure that your credit card choice is the one that will benefit you the most, all aspects considered. Compare credit cards until you have narrowed your options down to a minimum and after applying, stay informed about all the details of your credit card account, such as changes in product features and benefits, pricing structures and interest rates.

3. Re-evaluate your existing cards:
Look at the cards you currently own. Ask yourself - Do they have a low interest rate? Are the fees acceptable or far too high for your income? Does the rewards scheme offered apply to your life and your needs? Are you happy with the service provided by the financial institution?

If your credit cards are not fulfilling your financial needs, cancel them and shop around for a better one. I hear you: "Easy for you to say; I still have an outstanding balance on my credit card!" But even for this there is an answer. Many financial institutions now offer a Balance Transfer option on their credit cards. This offer entails taking over the cardholders "old" debt and allowing him to repay this amount at a much lower interest rate.

Make your credit card work for you - as previously mentioned, credit cards have a long list of positive attributes that are hard to recognise in a recession.

4. Do not over spend or make frivolous purchases:
Spending a great sum of money on your card may make you feel incredible, but that money is not yours: it belongs to the financial institution which lent it to you and needs to be repaid, with interest.

If you don't have the money, do not think that it is fine to spend it on a credit card. You will end up having to repay the amount, plus extra, leaving you more financially burdened than when you needed the credit to pay for what you could not afford.

5. Pay your bills on time:
Paying your bills on time keeps your credit record positive, steers your finances away from debt and saves you a lot of money on accumulating interest on an outstanding balance. If possible, pay off the entire amount outstanding on your card every month or before the interest free period is over.

If you cannot afford to pay off the entire outstanding amount on your card, pay more than the minimum requirement every month, which will not only see you paying off your debt quicker, but you will save on interest too.

6. Keep your spending to below half your credit limit
Credit holders in the UK, Europe and the USA are reeling from the lending institutions calling in their outstanding debt. This is not happening currently in South Africa, but that is no excuse for 'maxing' your card. Keep your spending to below half your card limit and should you find ourself in the unfortunate position where the financial institution does recall your outstanding debt, you will have much less to pay back.

7. Don't use credit cards to help you out of financial difficulties
Having more than two cards is a recipe for disaster. Applying for more credit to pay off credit means that in the short term you may find yourself with less money worries, but the next card being used to pay off the previous one will need paying at some stage, leading you into such a spiral of never ending debt that the financial trouble will not end - until you pay up, and not from another credit account!

8. If you are in financial trouble - call your card company and tell them
Running away from an outstanding credit is a very common reaction. However, you can run but the bills will need to be paid at some stage. The longer you do not pay your bill, the higher your interest repayments will be and the lower your credit rating will sink.

If you are in financial trouble, call your credit provider and work out a repayment plan which is manageable for you and stick to it no matter what happens. Most financial institutions are reasonable and will appreciate an honest request for help far more than having to chase you down for your card payments.

Surviving the credit crunch in South Africa is primarily a matter of self control. Your credit rating is a priority for your personal financial health. If you cannot afford something, do not buy it. Remain organised, informed and reliable with your credit account and always ask for help if you are slipping into dangerous territory.

About the Author:
Plastiq offers information and advice on a selected range of credit cards and allow visitors to compare credit cards from the cards featured on their site.